The Retired Investor: Return of American Gunboat Diplomacy

It was supposed to be about fentanyl, or was it replacing Maduro? The Sleeping Giant has returned, and make no mistake, Venezuela is the target. The stakes, however, are much bigger than most realize.

 

It has been a while so you may need an update on the definition. "Gunboat diplomacy is the pursuit of foreign policy objectives with the aid of conspicuous displays of naval power, implying or constituting a direct threat of warfare should terms not be agreeable to the superior force," according to Wikipedia. 

 

Does that sound familiar in the context of the current situation between the U.S. and Venezuela?

 

For the last several weeks, the full might of the Navy, including the largest, most deadly aircraft carrier in America's arsenal, has been cruising off Venezuelan shores, blowing fishing boats, speed boats, and maybe even row boats out of the water. The toll to date is 22 boats sunk, 83 KIA. The justification — the interdiction of alleged drug smuggling to the U.S. by President Nicolas Maduro's regime, as well as Latin American cartels. 

 

The reasoning is a bit thin, however, since more than 90 percent of fentanyl smuggling into the U.S. is through Mexico and is carried into the country by U.S. citizens. No fentanyl is produced in Venezuela, and none of that drug has been aboard the sunken boats.

 

As for other drugs, while Venezuela does not produce them, it is a transit country. More than 250 tons of cocaine pass through Venezuela every year on its way to Europe (not the U.S.). And while 80 percent of narcotics smuggled into the U.S. are transported via maritime lines, 30 percent are now hauled by narco-submarines. None of those vessels seems to be on the Navy's list of targets.

 

The narrative from most media and political sources is that drugs are just an excuse to accomplish the government's primary purpose — regime change. The stated purpose is to return the country to free and fair elections. Sounds good, but while the American anthem plays in the background, as a cynical Vietnam veteran, I have lived through too many of these "for democracy" playlists.

 

The entire escapade leaves me still looking for a deeper reason behind these excuses. After all, Donald Trump has proven that he has no problem with dictators and strongmen, nor with their governments. Why now, why Venezuela, and why Maduro?

 

Reason one could be Venezuela's relationship with China and Russia. Back in the day, we were friends, allies, and investors in Venezuela. I traveled there often in the 1980s. Caracas was a vibrant and dynamic city back then, known for its freewheeling democracy and oil-fueled economic prosperity. Things changed, however, with the rise in power of left-leaning Hugo Chavez in the 1990s.

 

Beginning in 2005, the U.S. started to sanction Venezuela as Chavez moved to appropriate foreign assets and deepened his relationship with Cuba. Combined with Chavez's economic and political policies, sanctions have weakened Venezuela's economy. After Maduro's 2013 election, sanctions increased again.

 

Maduro sought help from outside nations to keep the country solvent. China has obliged by extending $60 billion in loans over the past 20 years in exchange for oil. They have established satellite positions across the country, along with surveillance equipment, to secure strategic control over Venezuela's natural resources and critical infrastructure. 

 

Russia, for its part, has seen Venezuela as a forward base of influence in the Western Hemisphere and as a counterweight to U.S. military dominance. Putin has provided arms, military access, and expertise totaling more than $14 billion to the country, as well as loan restructuring, oil-for-debt agreements, and energy development.

 

Given this geopolitical background, enter Donald Trump stage right. He assumed the presidency with the promise of lowering inflation. He knew that one significant way to accomplish this was by reducing energy prices. Through his "Drill Baby Drill" policies, he promised to increase America's energy reserves and, at the same time, lower energy prices. Therein lies the rub.

 

The economic truth that the president failed to understand was that oil drillers have less incentive to explore and/or produce oil when energy prices fall. Adding insult to injury, a decades-long boom in U.S. oil production peaked two years ago and is expected to continue to decline. "Drill Baby Drill" seems to have been relegated to the backburner alongside DOGE.

 

After years of surplus energy, the U.S. faces an uncertain energy future. The country needs to procure a safe, reliable, and dependable oil supply. Before and after World War II, the Middle East fulfilled that role. After the creation of OPEC, the world changed, leaving the U.S. to seek out other sources.

 

We successfully developed our own energy resources, but now, with declining production, we need more oil, but where and how? Clearly, Russian oil is out, which leaves Latin America. Venezuela holds the world's largest proven oil reserves, estimated at 303 billion barrels, primarily located in the Orinoco Belt.

 

Enter Donald Trump and the return of Gunboat Diplomacy. Drugs and regime change may be the first step and the opening gambit in a far deeper, much more strategic ploy to secure additional energy resources for America's future. Next week, I will discuss the moves necessary to accomplish those goals in a global energy chess game that could bring Venezuela back into the fold of US influence in the years ahead.

 

For several years, readers have asked me to establish a website where they can read my past columns and interviews. I am thrilled to announce, "The Retired Investor," a comprehensive collection of my writing and videos, past and present, at www.SchmicksRetiredInvestor.com. I invite you to check it out and share your thoughts. Your feedback is invaluable to me.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.